DaVita must limit M&A activity in Utah, FTC says

DaVita will need to divest three dialysis clinics in Provo, Utah, avoid any no-poach agreements and limit future acquisitions across Utah, the Federal Trade Commission ordered late Monday.

Federal regulators alleged that the dialysis chain’s proposed acquisition of University of Utah Health’s dialysis clinics would likely create a monopoly in the Provo market. In addition to the divestment of three Provo clinics to Sanderling Renal Services, DaVita will need the agency’s approval before acquiring any new ownership interest in dialysis clinics in Utah.

The proposed order formally reinstated its prior approval provision, requiring the agency to sign off on any transaction—not just ones that trigger the Hart-Scott-Rodino Act threshold—in highly concentrated markets. The prior approval provision, which was rescinded in 1995, is one of several regulatory tools the federal government will use to crack down on anticompetitive mergers, antitrust experts said.

“This reflects the current enforcement environment coming out of the FTC with the new commissioner Lina Khan, who is generally operating under the idea that mergers are not always pro-competitive and big is not always better,” said Pahl Zinn, an attorney at Dickinson Wright who specializes in antitrust issues.

DaVita did not reply to requests for comment.

Dialysis centers require independent medical directors to ideally ensure that decisions are clinically driven rather than financially motivated. Dialysis providers have been known to sign nephrologists to long-term non-compete agreements to protect their newly acquired facilities, Zinn said, who noted that there aren’t many specialists in rural areas like Provo.

The order contains a no-poach provision that prevents DaVita from entering into any agreement that would restrict competitors, including Sanderling, from recruiting DaVita employees. DaVita and its former CEO were recently indicted for agreeing with competitors to not solicit each other’s employees.

“I highlight this provision because some critics have asserted that antitrust enforcement ignores competition for labor as an input,” FTC Commissioner Christine Wilson wrote in a concurring statement. “I believe that modern antitrust enforcement does, in fact, police the market for unlawful practices impacting competition for labor. Naked no-poach agreements are per se illegal under the antitrust laws, and have been subject to enforcement accordingly.”

Federal regulators are taking a broader view when it comes to antitrust oversight. Many healthcare companies, whether they are health systems looking to acquire small physician practices or dialysis chains buying one or two clinics, have pursued small transactions that have flown under regulators’ radar.

Now, the FTC will look at small transactions in highly concentrated markets, considering the merging parties’ history of consolidation rather than evaluating each individual transaction.

“DaVita has engaged in a pattern of acquiring independent dialysis facilities; many of these acquisitions fall below HSR thresholds and consequently escape pre-merger review, including this proposed acquisition,” Wilson wrote. “There is some evidence that this pattern of sub-HSR acquisitions has led to higher prices and lower service levels in the dialysis field.”

In two other cases that the FTC is applying the prior approval policy, the agency limited the notification requirement to transactions in specific markets, rather than the entire state, noted Alycia Ziarno, a partner at Nixon Peabody and deputy leader of its antitrust division.

“You have a company in DaVita, the FTC would claim, that is aggressive in doing deals they know are anticompetitive and shouldn’t be doing,” she said, adding that the University of Utah Health transaction wouldn’t be reportable under the Hart-Scott-Rodino Act. “DaVita is a what we call a repeat customer with the government. Frankly, if you look at this, there is no doubt this deal poses competitive issues—they clearly were going to own that market in the Provo area. I think that irritated the FTC.”

As for the initial DaVita-University of Utah Health transaction, DaVita would’ve acquired the university’s 18 dialysis clinics spanning the southeast corner of Nevada to the southern part of Idaho. DaVita would’ve owned seven of the eight facilities in the Provo market, and reduced the number of competitors from three to two.

It’s unlikely that competitors would’ve entered the market post-transaction, which could have life-threatening on impacts on dialysis patients, the FTC alleged in its complaint.

Under the proposed order, in addition to divesting three Provo-area dialysis clinics and providing transition services for up to one year, DaVita is prohibited from enforcing any non-compete agreements with the university or Sanderling. The dialysis chain must receive prior approval from the FTC before acquiring any new ownership interest in a dialysis clinic anywhere in Utah for 10 years.

Source: modernhealthcare.com